New supply on track for record year, lifting availability rates and moderating rental growth
Net leasing activity held relatively steady in Q3 2023 while new supply outpaced net absorption by the largest quarterly margin in 14 years.
Availability rates continued to rise across nearly all markets with the national availability rate increasing 40 bps quarter-over-quarter to 2.5% in Q3 2023.
Construction activity eased further from record levels, decreasing slightly quarter-over-quarter to 43.6 million sq. ft. while pre-leasing activity continues to slow.
There was 11.0 million sq. ft. of new builds delivered in Q3 2023, putting Canada on track for a record-breaking year of 43.8 million sq. ft. of new supply.
The pace of rental rate growth slowed further in Q3 2023 but remains positive, rising 11.8% year-over-year and returning towards growth rates seen prior to the pandemic.
Net leasing significantly outpaced by new supply
Net leasing activity continued at a tempered pace compared to its blistering pace in recent years, holding relatively steady quarter-over-quarter with national net absorption easing slightly to 3.1 million sq. ft. in Q3 2023.
New supply increased for a third consecutive quarter in Q3 2023, outpacing net absorption by 7.8 million sq. ft. for the largest quarterly margin recorded in 14 years.
Leasing activity was led primarily by the Calgary and Toronto markets, both of which saw strong levels of pre-leased new supply being delivered in Q3 2023. Meanwhile, the Waterloo Region and Montreal were the only markets to record negative net absorption in Q3 2023.
Winnipeg’s positive quarter reversed the market’s negative net absorption from H1 2023, leaving Montreal as the only market with negative net absorption year-to-date.
Industrial sector moves toward equilibrium as availability rates increase from all-time lows
The national availability rate rose for a fourth consecutive quarter, increasing 40 bps quarter-over-quarter to 2.5% in Q3 2023.
Relative to the historical norm, the national availability rate remains well below the 15-year average rate of 4.7%.
Eight of the 10 markets in Canada reported year-over-year increases in availability rates while contractions were recorded in Edmonton and London.
Vancouver, Waterloo Region and Montreal recorded the largest year-over-year increases in their availability rates in Q3 2023, rising 220 bps, 130 bps and 110 bps, respectively.
London, Toronto and the Waterloo Region continued to see availability rates below 2.0% in Q3 2023, with London at 0.8% and holding its rank as the tightest industrial market in Canada.
Construction activity eased further from peak
The national development pipeline continued to moderate from record levels, decreasing slightly quarter-over-quarter to 43.6 million sq. ft. of space under construction.
In Q3 2023, 9.0 million sq. ft. of new construction projects kicked off with 57.4% of the space located in the Toronto market.
Overall construction activity remains conservative, representing just 2.2% of national inventory. Seven of 10 markets are building at less than 4.0% of their respective current inventories.
Pre-leasing activity remains strong in London, Vancouver and Montreal with 94.8%, 67.5% and 52.6% of space under construction already committed, respectively.
Nationally, pre-leasing has slowed with only 37.1% of the 18.3 million sq. ft. of new supply scheduled to deliver in Q4 2023 committed.
Influx of new supply bringing relief to tight market conditions
New supply increased for a second consecutive quarter to a total of 11.0 million sq. ft. of new builds delivered in Q3 2023. This marked the third highest quarter of new supply on record.
The pace of deliveries has continued to hasten and over the last four quarters new supply has totaled 38.3 million sq. ft. across Canada.
More muted levels of pre-leasing have resulted in new supply having a greater overall impact on availability rates. Only 54.0% of new builds delivered this quarter were pre-leased, contributing 5.1 million sq. ft. of available space to the market.
Toronto, Vancouver and Calgary jointly accounted for 80.0% of all completions in Q3 2023, each individually accounting for 47.1%, 17.6% and 15.4% of new supply, respectively.
With an additional 18.3 million sq. ft. of new builds anticipated to be delivered over the next quarter, 2023 is on track for a record-breaking year of 43.8 million sq. ft. of new supply.
Pace of rental growth returns to pre-pandemic levels
The pace of rental rate growth slowed further in Q3 2023, but remains positive rising 11.8% year-over-year for a national average asking rent of $16.36 per sq. ft.
While national rent growth has moderated over the last four consecutive quarters, it remains relatively in line with the pace of growth seen prior to the pandemic.
Across Canada, rent growth has stabilized with seven of 10 markets reporting year-over-year growth rates in the range of 11% to 17%.
On a year-over-year basis, nearly every market with the exception of Edmonton continued to see increases in average net asking rental rates. However, quarter-over-quarter declines were recorded in Montreal (-2.7%), Vancouver (-1.3%) and London (-0.1%).
National sale price growth stagnates as markets see varying trends
Sale price growth slowed to the lowest level recorded since Q2 2020 at 2.2% year-over-year, resulting in a national average asking sale price of $274.12 per sq. ft. in Q3 2023.
Ottawa and Halifax saw the largest increases in asking sale prices with year-over-year growth in excess of 25.0%.
For the second consecutive quarter, sales prices in Vancouver and London recorded declines year-over-year in Q3 2023.
Vancouver continues to hold its leading position with the highest asking sale prices across Canada at $575.00 per sq. ft.